Can I use other people's credit to buy a home?

Question

Dumb question here.. But can I use another person's credit to purchase additional investment properties without them being a "partner" but really just a "lender"? I have two rentals right now along with my primary residence under me and wife's credit and in order to scale my real estate portfolio I cannot use just my own credit. From what I've read the most common solution is partnering with other people, which I just did for a STR in Big Bear. But partners like to make decisions and it created a ton of operational drag to find the right property, close escrow, do renovations and get set for listing to rent... I figure there's people willing to offer their credit and half the down payment money needed for say 15% interest. Then could refi later so they're off the loan and off title..

Jay Hinrichs · Answer

while not technically impossible its highly improbable. Way to many downside risks for the investor with next to no upside.. investor would have to basically be someone very close to you that is just trying to help you like relative etc. or just very inexperienced and naive to how real estate actually works in the investment end of things.

Linda Garcia · Answer

It's technically possible, but think of it from the other side. If you stopped making the payments, they would have no recourse. They could owe hundreds of thousands of dollars and would need to make payments on something they don't own in order to not ruin their own credit. I'm not implying that it would be something you would do, but life throws curveballs and ruin plans (who knew there would be a pandemic who put millions out of work?). It would be very unwise for someone to do so. There are alternative programs out there that can work with credit issues, foreclosures, having multiple properties, qualifying on rental income only, etc. The rate will be reflective of it being a higher risk loan for the lender, but it's still a loan if you really want one. Why can you not just use your own credit?

Chris Seveney · Answer

@Mark GomezPeople out there yes but let’s say they put all the money down and you put none: they are responsible for 100% of the loan so they would want 100% ownershipLet’s say they put 50% of down payment - they would again want 50% ownership. Otherwise doesn’t make sense for someone to do this otherwise do it on their own. You need them they don’t need you.

Jill F. · Answer

You can look at commercial lenders doing DSCR loans (sometimes called portfolio loans). If you ever want to buy a larger property with more than 4 units which fannie/freddie won't cover, you'll have to look at this route if you don't want partners. Because we started late in life without any w-2 income we went this way early after purchasing 2 four-units on personal credit. The loans have downsides such as: higher interest,adustable rates and shorter terms or only partially amortized loans, and at least at first, more money down but they offer many more flexible financing options-- like the ability to have a partially seller financed down payment or the ability to cross collateralize equity in other properties. These types of loans for small investors don't show up on your personal credit but they do (for us any way) still require a personal guarantee.

Mark Gomez · Answer

Thanks Jay, yea I don't want to take advantage of family or friends so if a knowledgeable investor would say heck no then I'd rather look for other options. I guess my other option is to partner with someone and give them full decision authority on renovation and furnishing decisions. And then I can focus on setting up the permits, pictures getting on Airbnb, VRBO etc and then managing it.. Having hours of calls and emails each week while I run my own business is not ideal. This third one (in Big Bear) has taken over 6 months since opening escrow, seller trying to back out caused lots of delay and time spent, so not much can do there.

Mark Gomez · Answer

Thanks Jill!I had no idea DSCR loans do not show up on your credit! I actually asked someone in person who sold them and she said they did show up on your credit.. Although looking back at the convo she might have just been throwing out guesses to a few of my questions. We have no problem issuing a personal guarantee and cross collateralizing. As a small business owner I get the 5th degree from conventional lenders and my wife wants to save our credit for buying a new home which we'll do probably by end of this year. So that's put a snag in things for the rest of this year. And to clarify my dumb question for everyone else, I'm looking to borrow money (OPM) to finance the down payments and pay them 10-15% interest for the privilege of, but do not want to tie up our personal credit in doing so. We've learned a lot on the STR setup and manage, so we feel like that's our strength. I like competing with hotels on price considering number of rooms and amenities!